In plain English
What Pip means
In most major FX pairs, prices are quoted to four decimal places, so a move from 1.0850 to 1.0851 is one pip. For USD/JPY, which is usually quoted to two decimal places, a move from 156.20 to 156.21 is one pip. It is a shorthand for price movement, not a guarantee of economic value.
Why it matters
Pips let traders compare moves across pairs and talk about gains, losses, and spreads in a standardized way. They are especially useful when sizing positions or comparing costs, because pip value changes with the pair and the trade size.
Example
Simplified example: if EUR/USD rises from 1.0850 to 1.0865, the move is 15 pips. On a standard lot, that change has a larger dollar value than on a mini or micro lot, because position size affects pip value.
Quick answers
Common questions
Do all brokers define a pip exactly the same way?+
The common convention is the same, but display precision can differ by platform and pair. Always check how the broker quotes the instrument.
Is a pip a fixed amount of money?+
No. Its monetary value depends on the pair, the account currency, and the trade size.
Sources